Deferred annuity helps build stable income and offers tax deductions, providing both protection and growth for retirement.

As tax season approaches, many employees may be receiving their tax bills. To save on tax, many employees consider purchasing a Qualifying Deferred Annuity Policy (QDAP), which allows tax deductions of up to HK$60,000¹ and also lets you set aside part of your income as savings, which can grow with interest during the accumulation period. Once the policyholder reaches the specified age, they can receive annuity income, helping them enjoy retirement life and hedge against longevity risk. However, when purchasing a deferred annuity, aside from tax deductions, what else should you pay attention to?

Many people planning to purchase a deferred annuity naturally hope to enjoy tax deductions while also receiving stable returns. The returns of a deferred annuity consist of guaranteed and non-guaranteed components. Non-guaranteed returns are affected by factors such as the insurer’s investment performance, bonus policy and economic conditions, and may not necessarily be realised. As such, the guaranteed income component of an annuity is particularly important.

Some deferred annuities available in the market offer relatively generous guaranteed returns, helping policy owners lock in profits early. Sun Life 永明’s 豐碩延期年金計劃 (Foresight Deferred Annuity Plan) offers higher guaranteed returns, as well as non-guaranteed returns with growth potential. It also provides greater flexibility with different premium payment periods² and annuity periods³, allowing policy owners to save on tax while flexibly accumulating wealth to strengthen retirement protection.

It is often said that one may live to be a hundred. With advances in medical science and rising life expectancy, this may soon be revised to “living to 120”. As retirement lasts longer and longer, aside from everyday housing and living expenses, one may also have to face regular medical costs, and even unexpected medical expenses arising from accidental injuries. That is why retirement products with returns that are close to expectations are so important.

However, many deferred annuity products in the market calculate the non-guaranteed portion of returns based on terminal bonuses, meaning the policyholder may lose all non-guaranteed bonuses when withdrawing annuity payments in retirement, throwing retirement plans into disarray. If a shortfall in savings is only discovered at retirement, it is already too late.

Sun Life永明's 豐碩延期年金計劃 determines and pays its non-guaranteed monthly annuity payments based on the accumulated reversionary bonus. Once declared, the cash value of the reversionary bonus is guaranteed, and it accumulates within the policy to provide substantial non-guaranteed monthly annuity payments⁴, helping you achieve your retirement goals and giving employees greater confidence in their expected retirement income.

Every wage earner has a different retirement plan in mind, and the annuity mix can be decided according to actual needs. For example, if one retires at 65 and expects a relatively short retirement period, while having other assets to cover living expenses in the early years, there is no need for a particularly long annuity term. If one retires early at 50 and estimates a longer retirement period, it would be more suitable to choose a longer annuity term. A flexible deferred annuity product with multiple options can meet the needs of different individuals.

Sun Life永明’s 豐碩延期年金計劃 offers up to 56 combinations, allowing the policyowner to choose different premium payment periods², annuity commencement ages³ and annuity terms³ according to their own financial needs, providing greater flexibility in retirement planning. The plan has the following three key advantages:

1. In addition to annuity terms³ of 10, 15 or 20 years, the plan can also be selected up to age 100, unlike other tax-deductible annuity products in the market, which generally offer income periods of 20 to 30 years, making it suitable for different people’s plans and budgets
2. The plan has a shorter breakeven period; for example, with a premium payment period² of 5 years, the earliest breakeven point is in the 8th year. In the event of an unexpected emergency, funds can also be withdrawn promptly for contingencies, giving the policyowner greater flexibility
3. There are 7 options for the annuity commencement age³, starting as early as age 50, so when to start receiving annuity income is entirely up to you

45-year-old photographer Ben is passionate about his career and hopes to continue working in a profession he loves after retirement. However, he also understands that he cannot rely solely on employment income and savings to meet retirement expenses. Therefore, he hopes to purchase a deferred annuity during the golden years of his current career so that he can enjoy tax deductions while also starting to plan for retirement.

In the end, he decided to take out Sun Life 豐碩延期年金計劃, paying a total premium of US$103,348 over 5 years⁵. From age 65, he will start receiving annuity payments until age 100, with a guaranteed monthly annuity of US$600. The policy’s internal rate of return reaches 2.64% per annum, and together with the non-guaranteed annuity income and the income from his freelance photography work, he can enjoy retirement life with ease and peace of mind.

There are many companies offering deferred annuity products in the market. When purchasing a deferred annuity, in addition to comparing product returns and features, you may also wish to consider the background of the insurer. As an annuity is a long-term savings product, choosing an insurer with financial sustainability is equally important.

Sun Life's 豐碩延期年金計劃 is simple and convenient to apply for, with no medical questions required, making it easy even for busy office workers to build additional retirement savings. From now until 31 March 2024, if you successfully apply for 豐碩延期年金計劃 and meet the specified first-year annualised premium requirement, you can enjoy a premium refund of up to 18% of the first-year annualised premium. The premium refund offer is subject to terms and conditions.

The plan is subject to terms and conditions. This article contains only general information and does not constitute any recommendation to sell an insurance policy. For product features, including risk details and exclusions, please refer to the relevant sales brochure and specimen policy document. If there is any inconsistency between this article and the policy document, the policy document shall prevail. For definitions and full terms and conditions, please refer to the specimen policy document. Sun Life will provide the relevant documents upon request. For details, please refer to the Sun Life website: https://sunlife.co/813x  

Remarks:

1. The maximum tax deduction amount for each taxpayer in each assessment year is HK$60,000, which is the aggregate cap for qualifying annuity premiums and tax-deductible MPF voluntary contributions. Under this plan, whether the premiums paid are eligible for tax deduction under salaries tax and personal assessment is subject to the prevailing tax laws in Hong Kong and your individual circumstances. Please refer to the section “Tax implications of a qualifying deferred annuity policy” for the key risk factors.

2. This plan does not offer a prepayment premium service.

3. Once the policy takes effect, the annuity commencement age and annuity period cannot be changed.

4. Non-guaranteed monthly annuity payments are determined and paid based on accumulated reversionary bonuses. The non-guaranteed monthly annuity payments and reversionary bonuses are not guaranteed and are determined solely by Sun Life Hong Kong Limited (“Sun Life HK”), which may announce them from time to time. Both may change according to the performance of several experience factors, with investment return generally regarded as the main determinant. Other factors include, but are not limited to, claims experience, policy expenses, tax, and policyholder surrender experience. Any change to the reversionary bonuses and non-guaranteed monthly annuity payments will also affect the total internal rate of return. Under this plan, any withdrawal of the cash value of accumulated reversionary bonuses can only be made after the premium payment period. Such withdrawal after the premium payment period will reduce the face value and cash value of the accumulated reversionary bonuses, as well as future non-guaranteed monthly annuity payments.

5. The total amount of benefits at maturity and total premiums paid does not include premiums paid for all additional and optional supplementary benefits, and any premiums paid for any optional supplementary benefits under this basic plan are not eligible for tax deduction.

This article is provided by Sun Life Hong Kong for general reference only and does not take into account any personal needs or suitability, nor should it be regarded as sales advice. Before taking out insurance, you should discuss with a licensed insurance adviser to find a suitable insurance solution, and refer to the information provided by the insurer.

Last updated: 15 December 2023.    

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.